Meeting room of the international donor conference of the Green Climate Fund, hosted by the German government in Berlin on 20 November 2014.
Copyright© Ralf Rühmeier
Climate change and development Climate finance: Germany remains a reliable partner
By providing public funding through its development policy, Germany is making a major contribution to the global implementation of the Paris Agreement (External link). Just like all other nations, developing countries and emerging economies will also need to embark on ambitious programmes to reduce greenhouse gas emissions and adapt to the consequences of climate change if the world is to achieve climate neutrality and climate resilience in the 21st century. That means shifting to a climate-neutral lifestyle and economy and making societies more resilient to the consequences of climate change.
Yet public funds will not be enough to achieve such a fundamental transformation. What it will take is for all global financial flows, including private investment and foreign direct investment and across all economic sectors and all financial markets, to be aligned with those two goals. That was what all the parties to the Paris Agreement, including Germany, agreed in 2015 (Article 2.1c)).
In Copenhagen in 2009, the world's industrialised countries decided to mobilise, from 2020, an annual 100 billion US dollars for climate change mitigation and adaptation in developing countries. At the 2015 Paris Climate Conference, it was agreed to extend this goal to 2025. According to OECD figures, the target was reached for the first time in 2022. A New Collective Quantified Goal on Climate Finance (NCQG) is to be adopted for the period after 2025. It is to exceed 100 billion US dollars and take account of developing countries' needs and priorities. Meeting the Paris climate goals requires global efforts. This also needs to be reflected in the new finance goal. Particularly important elements in this endeavour are contributions from the private sector and the efforts made by the developing and emerging economies themselves. The negotiations on the new climate finance goal are to be completed at the 29th Conference of the Parties (COP 29) in Baku in 2024.
Furthermore, the 2021 Glasgow Climate Conference urged industrialised nations to at least double their collective provision of adaptation finance for developing countries from 2019 levels by 2025, in order to help achieve a balance between adaptation and mitigation finance.
Germany's contribution to international climate finance
Germany has already considerably increased its climate finance contributions. Between 2005 and 2022, the German government increased budgetary funds for climate action more than tenfold. Since 2017, the grant equivalents from KfW development loans have also been included in calculations. With those sums included, the total amount of budget funds committed by the German government for climate change mitigation and adaptation measures stood at some 6.39 billion euros in 2022. Eighty-six per cent of that came from the budget of the Federal Ministry for Economic Cooperation and Development (BMZ).
It is a declared goal of the German government that the provision of financial resources should aim to achieve a balance between adaptation and mitigation activities. This goal was largely attained in 2022. In that year, mitigation accounted for 56 per cent and adaptation for 44 per cent. These resources went towards climate projects in over 80 countries, for instance in Jordan, where the BMZ has been supporting a desalination plant on the Red Sea in order to improve water supply over the long term for the population, which includes millions of displaced people. The energy required for the plant will mainly be generated from renewable sources.
At COP 27 in November 2022, Federal Chancellor Olaf Scholz affirmed the goal of increasing Germany's contribution to at least six billion euros per year by 2025 at the latest and thus honouring the commitment made by Angela Merkel at the G7 summit in June 2021. In 2022, Germany reached this target for the first time.
In addition to the funding provided from its federal budget, Germany also contributes through public loans (administered by KfW and DEG) and by mobilising capital market funds. In this way, KfW Development Bank together with its subsidiary Deutsche Investitions- und Entwicklungsgesellschaft (German Investment and Development Company, DEG) was able to commit an additional 3.09 billion euros in 2022 in the form of development loans, promotional loans, equity investments and other financing from capital market funds.
Significantly, Germany has also used public funding to leverage private climate finance, mainly in the shape of revolving credit lines for local (development) banks, investments in structured funds and public-private partnerships (PPPs). So in 2022, Germany's contributions from all sources totalled 9.96 billion euros. This means that, in 2022, Germany contributed its fair share to achieving the collective goal of 100 billion US dollars.
Bilateral and regional activities
Climate finance goes into measures both to mitigate greenhouse gas emissions and to help countries adapt to climate change. Some climate-related projects also contribute to forest and biodiversity conservation, including REDD+. The BMZ is now also assisting selected partner countries in their efforts to harness international market mechanisms under Article 6 of the Paris Agreement in such a way that these make financial contributions to greenhouse gas emissions reduction while also facilitating sustainable development.
Germany channels most of its climate finance through bilateral cooperation. The BMZ works together with nearly all its partner countries on these issues. Activities build on the partner countries' own efforts to integrate climate change mitigation and adaptation into their national development strategies.
On average, more than 85 per cent of Germany's annual funding for climate finance comes from the BMZ's budget. In addition, the German government supports extensive climate action through its International Climate Initiative (External link) (IKI). Since 2022, the IKI has been implemented by the Federal Ministry for Economic Affairs and Climate Action (BMWK) in close collaboration with the Federal Ministry for the Environment, Nature Conservation, Nuclear Safety and Consumer Protection (BMUV) and the Federal Foreign Office (AA). The Federal Ministry of Education and Research (BMBF) and the Federal Ministry of Food and Agriculture (BMEL) also contribute to Germany's climate finance. The Federal Foreign Office is the lead agency for the international climate negotiations. The BMZ, too, plays an active role in the negotiations.
Multilateral activities
When it comes to effecting change on a large scale, multilateral organisations like the World Bank Group and the United Nations are important partners. They are able to implement major programmes in developing countries and emerging economies and can coordinate the inputs of various different donors. Multilateral institutions also often play a key role in policy dialogue at national and international level. To complement its bilateral activities in the climate sector, the BMZ therefore has an ambitious multilateral portfolio.
Germany makes a major contribution to multilateral climate finance. The BMZ is one of the largest donors to the Green Climate Fund (External link) (GCF) and the Global Environment Facility (External link) (GEF). Germany is also a major donor to the specialised GEF funds such as the Least Developed Countries Fund (External link) and the Special Climate Change Fund (External link), and to the Adaptation Fund (External link) and the Climate Investment Funds (External link) (CIF). In the multilateral climate funds, the German government is a strong supporter of inter-fund cooperation. In international institutions, it actively puts forward the development policy positions and values embraced by Germany.
In addition to this, Germany is providing strong support to its partners to assist them in dealing with climate-related loss and damage.
The BMZ is working with the multilateral and regional development banks to help establish the right environment for climate policies to be truly effective. Multilateral banks can act as global pioneers, in particular by channelling global financial flows into low-emission and climate-resilient investment pathways. That means ensuring that their whole range of activities take account of climate change and its consequences. Among other things, the BMZ has successfully pressed for the International Development Association (External link) (IDA), the World Bank's financing instrument for the poorest countries, to mainstream climate change mitigation and adaptation in its core business.
- Climate Finance Advisory Service (CFAS) (2022): Process Proposal for Defining the New Collective Quantified Goal External link
- Climate Finance Advisory Service (CFAS) (2022): Just Transition Finance External link
- Germanwatch (2022): Mobilising climate adaptation investments from the private sector in developing countries External link
- Climate Finance Advisory Service (CFAS) (2021): Making finance flows consistent with the Paris Agreement: Opportunities and challenges concerning Article 2.1c External link
- Climate Finance Advisory Service (CFAS) (2020): Options for the post-2025 climate finance goal External link
- World Resources Institute, New Climate Institute, Germanwatch (2020): Raising the Game on Paris Alignment – Six Memos on the Multilateral Development Banks’ Paris Alignment Approach External link
- Climate Finance Advisory Service (CFAS) (2019): Determining the Needs of Developing Countries to Implement the Paris Agreement and the Convention External link
- Climate Finance Advisory Service (CFAS) (2019): Transparency of Support – Development of the Common Tabular Format External link
- World Resources Institute, New Climate Institute, Germanwatch, Fundación Avina (2018): Toward Paris Alignment – How the Multilateral Development Banks Can Better Support the Paris Agreement External link
As at: 19/06/2024